Global base oils arb outlook: Week of 8 September

·         FOB Asia Group II base oils prices hold unusually firm versus US export prices so far in Q3 2025.

·         Asia’s firm prices make arbitrage to move surplus supplies to Americas hard to work.

·         Closed arbitrage complicates removal of surplus supplies, raising prospect of build-up of supplies in Asia-Pacific market.

·         Closed arbitrage contrasts with Q3 2024, when Asia prices fell to steep discount to US export prices.

·         Steep discount to US export prices facilitated flow of shipments to Americas and removal of surplus supplies from Asia.

·         Asia’s firmer prices so far in Q3 2025 and closed arbitrage to Americas could instead reflect extension of Asia’s unusually tight fundamentals since start of this year.

·         Completion of most plant-maintenance work in Asia raised prospect of rise in region’s base oils supply at start of Q3 2025.

·         Asia’s supply instead holds steady in July 2025 from previous month and falls for seventh straight month from year-earlier levels.

·         Low supply coincides with signs of firmer-than-expected regional demand at start of Q3 2025, provisional data shows.

·         Low supply and firmer-than-expected demand leaves supply-surplus unusually low in July 2025 for fifth time in six months.

·         Small surplus contrasts with expected rebound in net supply at start of Q3 2025.

·         Small surplus contrasts with actual rebound in net supply at start of Q3 2024.

·         Small surplus cushions impact of typical seasonal fall in lube consumption in month of August.

·         Small surplus curbs need to remove large volumes of supplies through shipments to more distant markets like Americas.

·         Small surplus also curbs pressure on Asia refiners to discourage flow of shipments from US to markets like India and Middle East.

·         Small surplus duly curbs downward pressure on US prices to  keep open the arbitrage from US to India.

·         US export prices fall during Q3 2025, but size of price-drop only slightly outpaces lower feedstock prices.

·         Lower prices then keep open the arbitrage from US to India.

·         Supply and price dynamics could change in coming months when new production capacity starts up in Asia.

·         Even so, timing of expected revival in Asia’s surplus supply this year faces repeated push-back.

·         Any extension of that trend over coming weeks would provide valuable opportunity for US to clear more surplus supplies ahead of market-slowdown in Q4 2025.